Tiger Airways: Negotiating Tigerair Philippines transaction (OCBC)

An online Philippine news portal, InterAkyson, reported last Friday that Cebu Pacific is in talks to acquire Tigerair Philippines (TRP) from Tiger Airways Holdings (TR). The article quoted an executive director of the Civil Aeronautics Board as saying that Cebu Pacific has filed an application to acquire 100% of TRP. TR has confirmed that it is in the midst of negotiating a proposed transaction involving TRP but emphasised that no definitive agreement has been signed yet. TR owns 40% of TRP. For the latest quarter, 2QFY14, losses for TRP widened to S$9.0m despite narrowing losses for the previous three quarters (-S$8.3m in 3QFY13; -S$7.3m in 4QFY13; -S$6.0m in 1QFY14). We believe that a sale of TRP should be a positive for TR, given that TRP operates in a market suffering from overcapacity. Pending additional updates, if any, regarding the possible sale of TRP, we maintain our HOLD rating and fair value rating of S$0.55 (based on 1.1x P/B) on TR.

Cebu Pacific may be in talks with TR
An online Philippine news portal, InterAkyson, reported last Friday that Cebu Pacific is in talks to acquire Tigerair Philippines (TRP) from Tiger Airways Holdings (TR). The article quoted an executive director of the Civil Aeronautics Board as saying that Cebu Pacific has filed an application to acquire 100% of TRP. The director also said that the CAB is evaluating the planned buyout and that the agency expects to finish the review within the next two weeks. TR has confirmed that it is in the midst of negotiating a proposed transaction involving TRP but emphasised that no definitive agreement has been signed yet. TR owns 40% of TRP.

Operational challenges
To recap, TRP, like TR’s two other associate airlines, Tigerair Mandala (TRM) and Tigerair Australia (TRA), has been facing persistent operational challenges, specifically the lack of demand growth, competitive fare pressures and expansion in industry capacity. For the latest quarter, 2QFY14, losses for TRP widened to S$9.0m despite narrowing losses for the previous three quarters (-S$8.3m in 3QFY13; -S$7.3m in 4QFY13; -S$6.0m in 1QFY14). We believe that a sale of TRP should be a positive for TR, given that TRP operates in a market suffering from overcapacity.

Tie-ups with China Airlines, Scoot and SpiceJet
On 16 Dec, TR made three announcements. Firstly, Tigerair signed a JV agreement with China Airlines to establish Tigerair Taiwan, a Taiwan-based budget carrier. Tigerair will hold a 10% stake in the new carrier, which will have a paid-up capital of NT$2b (~S$85m). We like that TR is taking a relatively small stake, while the partnership will increase the group's reach to Japan and Korea. Secondly, Tigerair and Scoot signed an alliance agreement to further align their commercial activities, and provide greater choice and flexibility for customers. Thirdly, Tigerair signed a three-year interline agreement with India-based LCC SpiceJet. Pending additional updates, if any, regarding the possible sale of TRP, we maintain our HOLD rating and fair value rating of S$0.55 (based on 1.1x P/B) on TR.

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